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FATF Issues New Report on UK AML/CFT Measures

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The Financial Action Task Force (FATF) has published a follow-up report on the UK’s anti-money laundering (AML) and counter-terrorist financing (CFT) measures, acknowledging that the country has taken several actions to strengthen its framework since its 2018 mutual evaluation report (MER). The report details that the UK is now “compliant” on 24 Recommendations, “largely compliant” on 15, and remains “partially compliant” on 1 Recommendation. 

While the FATF awarded the UK a high rating in its 2018 MER, the UK’s supervision regime was assessed to be only “moderately effective”. Specifically, the report detailed serious weaknesses in the way UK AML/CFT supervisors supervise firms from a risk-based perspective. In response, the UK government and the private sector published a milestone joint Economic Crime Plan that responded to FATF’s MER recommendations and included a commitment to enhance the risk-based approach to supervision as one of its strategic priorities.  

The FATF states that the UK will continue to regularly inform the agency of progress achieved in improving the implementation of its AML/CFT measures.

Recommendation 13: Enhanced due diligence (EDD) measures 

The UK’s previous lack of enforceable obligations about correspondent banking resulted in the FATF rating the country as “not compliant” on Recommendation 13 in its third round MER in 2009. In 2018, the FATF increased this rating to “partially compliant” due to the country’s introduction of enhanced due diligence (EDD) measures for correspondent banking. However, these measures were only applied to respondent institutions outside of the European Economic Area (EEA).

In 2021, the UK amended its Money Laundering Regulations (MLR) by changing the definition of “third country” to include any jurisdiction outside of the UK. This amendment made EDD measures mandatory across correspondent banking and other similar relationships with all countries outside of the UK. In light of this, the FATF re-rated the UK as “compliant”.

Recommendation 29: Financial intelligence unit (FIU)

In its fourth round MER in 2018, the FATF noted the UK Financial Intelligence Unit’s (UK FIU’s) lack of resources as a major contributing factor to its ability to perform key functions, such as conducting operational and strategic analyses of intelligence submitted through the Suspicious Activity Reports (SARs) regime. 

The FATF notes that the UK has made some progress to this end through the adoption of its SAR Reform Programme, which includes new IT systems and plans for increasing staff and analytical capacity as some of its core elements. However, the FATF highlighted that “the expansion from 81 to 141 staff at the FIU is still insufficient given the size of the UK financial sector”. In 2021, the Financial Conduct Authority (FCA) reported an increase in SAR filings, noting a 16% rise from 2017 to 2020. Due to this exponential rise, the FATF has kept the UK’s rating for Recommendation 29 at “partially compliant”. 

Recommendation 15: Supervision of virtual asset service providers (VASPs)

Since the UK’s fourth-round MER, Recommendation 15 relating to “new technologies” was amended to include obligations related to virtual assets (VA) and virtual asset service providers (VASPs) following updated guidance published by the FATF in 2019.

While the UK has met many of the revised requirements set out by Recommendation 15, including the identification and assessment of ML/TF risks related to cryptoasset exchange providers and cryptoasset custodian wallet providers, the report notes that “minor gaps” in compliance remain. These gaps include a lack of clarity on whether UK law covers the transfer of VAs, as well as the travel rule not applying to VAs. In light of this, the FATF has kept the UK’s rating at “largely compliant”. 

Compliance firms should note that the UK’s new Economic Crime Plan is due to be published by the government later this year. Firms should monitor for this and consider the likelihood that any amended elements may trace back to some of the open issues identified by the FATF in this follow-up report.

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Originally published 17 June 2022, updated 01 July 2022

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